CPA Blog

Prepaid tuition vs. college savings: Which type of 529 plan is better?

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Published: Monday, 26 September 2016 09:14

Written by Phillip Strickler, CPA.CITP

Section 529 plans provide a tax-advantaged way to help pay for college expenses. Here are just a few of the benefits:

• Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred.
• Some states offer tax incentives for contributing in the form of deductions or credits.
• The plans usually offer high contribution limits, and there are no income limits for contributing.

Prepaid tuition plans

With this type of 529 plan, if your contract is for four years of tuition, tuition is guaranteed regardless of its cost at the time the beneficiary actually attends the school. This can provide substantial savings if you invest when the child is still very young.

One downside is that there’s uncertainty in how benefits will be applied if the beneficiary attends a different school. Another is that the plan doesn’t cover costs other than tuition, such as room and board.

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Should you offer spousal health care coverage?

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Published: Monday, 19 September 2016 09:39

Written by Phillip Strickler, CPA.CITP

When looking to manage benefits costs, employers have many ideas to consider. One in particular is whether and how to offer health care insurance to their employees’ spouses.

The Affordable Care Act doesn’t require spousal coverage. It only requires coverage for dependent children. But many employees may frown on seeing spousal coverage suddenly become expensive or vanish entirely. So this is a question warranting careful forethought.

2 established ways

Essentially, there are two established ways of saving money on spousal coverage: 1) rationalizing the expense through a cost-sharing surcharge, or 2) eliminating coverage altogether through a “spousal carve-out” policy.

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Documentation is the key to business expense deductions

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Published: Tuesday, 13 September 2016 09:51

Written by Phillip Strickler, CPA.CITP

If you have incomplete or missing records and get audited by the IRS, your business will likely lose out on valuable deductions. Here are two recent U.S. Tax Court cases that help illustrate the rules for documenting deductions.

Case 1: Insufficient records

In the first case, the court found that a taxpayer with a consulting business provided no proof to substantiate more than $52,000 in advertising expenses and $12,000 in travel expenses for the two years in question.

The business owner said the travel expenses were incurred ”caring for his business.“ That isn’t enough. ”The taxpayer bears the burden of proving that claimed business expenses were actually incurred and were ordinary and necessary,“ the court stated. In addition, businesses must keep and produce ”records sufficient to enable the IRS to determine the correct tax liability.“ (TC Memo 2016-158)

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Now’s the time to start thinking about “bunching” — miscellaneous itemized deductions, that is

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Published: Tuesday, 06 September 2016 08:59

Written by Phillip Strickler, CPA.CITP

Many expenses that may qualify as miscellaneous itemized deductions are deductible only to the extent they exceed, in aggregate, 2% of your adjusted gross income (AGI). Bunching these expenses into a single year may allow you to exceed this “floor.” So now is a good time to add up your potential deductions to date to see if bunching is a smart strategy for you this year.

Should you bunch into 2016?

If your miscellaneous itemized deductions are getting close to — or they already exceed — the 2% floor, consider incurring and paying additional expenses by Dec. 31, such as:

• Deductible investment expenses, including advisory fees, custodial fees and publications
• Professional fees, such as tax planning and preparation, accounting, and certain legal fees
• Unreimbursed employee business expenses, including vehicle costs, travel, and allowable meals and entertainment.

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